Intellicheck, Inc. Q3 FY2022 earnings

Intellicheck's fiscal 2022 third quarter was a story of mix, not momentum. Total revenue for the quarter ended September 30, 2022 fell 17.0% to $4.01 million from $4.83 million a year earlier. Nearly all of the decline came from equipment sales, which were negligible in the current period after a significant one-time hardware sale in the prior-year quarter. SaaS revenue, the subscription core, grew 22% to a record $3.97 million from $3,245,000. Excluding equipment sales, revenue rose 18% year over year, management said in the 10-Q. CEO Bryan Lewis credited new products, expanded digital applications and a growing customer base for higher transaction volume.

Margins and profitability improved sharply. Gross profit rose 10.0% to $3.65 million from $3.32 million, and gross margin reached 91.1%, up 22.3 percentage points from 68.7%. The jump reflects the absence of low-margin hardware; excluding equipment sales, gross margin was 92% in the quarter against 93% a year earlier. Operating expenses were almost unchanged at $4.38 million, up 1% from $4.35 million, as higher personnel, professional fees and marketing costs offset other savings. Included in operating expenses was $729,000 of non-cash equity compensation, up from $712,000 a year earlier. The operating loss narrowed 29.4% to $724,000 from $1,025,000. The net loss narrowed by the same rate to $724,000 from $1,026,000, and diluted loss per share was $0.04 compared with $0.06. Operating margin was -18.0%, up 3.2 percentage points from -21.2%. Adjusted EBITDA, a non-GAAP measure, was $75,000 compared with negative $272,000 a year earlier.

Nine-month figures follow the same pattern. Revenue for the nine months ended September 30, 2022 fell 8.6% to $11.42 million from $12.49 million, again on lower equipment sales, while SaaS revenue rose 22% to $11,249,000. Gross profit rose 11.7% to $10.38 million from $9.29 million. The year-to-date net loss narrowed 49.3% to $3.29 million from $6.49 million, and diluted loss per share was $0.17 compared with $0.35. Year-to-date operating margin was -28.8%, up 23.2 percentage points from -52.1%.

Cash is the soft spot. Operating cash flow was negative $173,000 in the quarter, down from positive $1,482,000 a year earlier. For the nine months, operating cash flow was negative $1,711,000, down from positive $407,000. Capital expenditures were $9,000 in the quarter, down 94.3% from $157,000, and $165,000 year to date, down 51.3% from $339,000. Cash and cash equivalents totaled $11.8 million at September 30, 2022, and stockholders' equity was $18.3 million. Management said available cash, expected cash from operations and a revolving line of credit should cover working capital and capital expenditure needs for at least the next 12 months.

Contract indicators point forward. Deferred revenue, current portion, was $1.73 million, up 26.1% from $1,372,311 a year earlier, and remaining performance obligations were $1.73 million, up 25.3% from $1,382,048. Management reported no impairment triggers on goodwill or intangible assets during the nine-month period, and it continues to monitor its stock price and operations for potential indicators.

Risks are the usual ones for a small identity software vendor. The safe harbor language cites long sales and implementation cycles, possible supply chain delays, reliance on government-provided data, government audits and contract cancellations, and liability from security breaches or product failure. Management also flagged uncertainty about the duration and severity of COVID-19. Intellicheck gave no formal revenue or earnings guidance for the fourth quarter or the full fiscal year, and it cautioned that the reported results are preliminary until the Form 10-Q is filed. The company said it keeps the option open to raise additional funds for faster expansion, more marketing, new markets or acquisitions, and warned there is no assurance it could do so on satisfactory terms.